Global Themes

The U.S. dollar was subdued Friday as it consolidated a rally that’s propelled it to June 2017 highs versus a wide swath of rivals, including the euro and sterling. Weary markets have taking solace from the U.S. and China agreeing to return to the negotiating table to try to broker a trade compromise, something the world’s two top economies haven’t done in months. Yet cautious optimism over trade continued to share the spotlight with Turkey whose economic troubles remained close to the surface. Add it all up and the buck was lower against most rivals Friday but still on track for its fourth gain in as many weeks. Turkey’s lira led emerging markets lower, down more than 5%, which snapped its three-day recovery from record lows. Consequently, the Mexican peso underperformed along with the South African rand. North American numbers are due today on U.S. consumer sentiment and Canadian inflation. 

JPY

The yen was a top performer Friday as skittish sentiment returned to global markets. The yen is benefiting as a haven from concerns about Turkey’s currency crisis which has emerging markets under renewed fire. Dow futures pointed to a negative start for Wall Street a day after the index climbed nearly 400 points or more than 1.5%. Market uncertainties stemming from global trade and emerging markets have the yen perched toward the upper end of its range and near its strongest level against the greenback since late June.

CAD

Canada’s dollar leaped more than 0.5% to session highs after area inflation unexpectedly jumped which nudged the door open wider for the Bank of Canada to raise interest rates further this year. Consumer prices rose by a whopping 3% annually in July compared to forecast to hold steady at 2.5%. Core prices were up by 1.6% from 1.3%. The so-called common rate that the BOC eyes steadied at 1.9%. The BOC’s main interest rate is at 1.50% after two quarter percentage point rate hikes this year. The data should serve as a reminder of the solid shape of the Canadian economy, boding somewhat better for the loonie’s coming prospects.

GBP

Sterling steadied above its lowest level in 14 months Friday, finding some underpinning from the respectable week the U.K. economy logged. Area unemployment receded to a more than 40-year low of 4%, inflation rose while consumers ramped up spending. Still, upside appears limited for the pound given uncertainty over whether Britain will reach a trade deal with the EU ahead of its March 2019 departure.

USD

The U.S. dollar softened for a second straight day Friday as it consolidated a rally to June 2017 highs. Still, the broadly weighted dollar index was on track to finish a fourth consecutive in first place. The dollar has dominated since April as the U.S. economy gained steam and the Fed fired two rate hikes over the first half of the year and penciled in two more by year-end. But dollar buying abated in part as renewed optimism about coming trade talks between the U.S. and China. More good news could follow today on the economy with consumer optimism expected to tick higher from already elevated levels, a scenario that would bode well for spending and growth.

EUR

The euro moved its chin above mid-2017 lows, though negative sentiment limited topside momentum. The euro’s rise stems mostly from the dollar consolidating a rally to new highs this week. The euro continues to face daunt headwinds from concerns about European banks’ exposure to Turkey’s financial woes. Italy has served as another thorn in the euro’s side on fears that the new coalition government in Rome might ramp up spending and add to already bloated deficits.

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